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Is Nutanix, Inc. (NTNX) A Good Stock To Buy?

Reymerlyn Martin

Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.

Nutanix, Inc. (NASDAQ:NTNX) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. NTNX was in 37 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 39 hedge funds in our database with NTNX positions at the end of the previous quarter. Our calculations also showed that NTNX isn't among the 30 most popular stocks among hedge funds.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

We're going to take a glance at the new hedge fund action encompassing Nutanix, Inc. (NASDAQ:NTNX).

What have hedge funds been doing with Nutanix, Inc. (NASDAQ:NTNX)?

At the end of the fourth quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in NTNX over the last 14 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NTNX_apr2019

More specifically, D E Shaw was the largest shareholder of Nutanix, Inc. (NASDAQ:NTNX), with a stake worth $127 million reported as of the end of September. Trailing D E Shaw was Hunt Lane Capital, which amassed a stake valued at $67.4 million. Bloom Tree Partners, Renaissance Technologies, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Since Nutanix, Inc. (NASDAQ:NTNX) has experienced bearish sentiment from hedge fund managers, logic holds that there exists a select few fund managers that elected to cut their full holdings by the end of the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest investment of the 700 funds monitored by Insider Monkey, valued at close to $20.8 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund sold off about $15.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks similar to Nutanix, Inc. (NASDAQ:NTNX). These stocks are China Southern Airlines Co Ltd (NYSE:ZNH), Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), TIM Participacoes SA (NYSE:TSU), and Tripadvisor Inc (NASDAQ:TRIP). This group of stocks' market valuations resemble NTNX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZNH,4,14176,-1 IONS,21,140938,-1 TSU,14,320035,-2 TRIP,29,1521641,3 Average,17,499198,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $499 million. That figure was $550 million in NTNX's case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Nutanix, Inc. (NASDAQ:NTNX) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately NTNX wasn't in this group. Hedge funds that bet on NTNX were disappointed as the stock lost 8.8% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

Disclosure: None. This article was originally published at Insider Monkey.

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